Star Group: The Cheap Multiple Is Real — and Partly Earned

Star Group is the kind of stock that looks too good to be true until you read the small print, and the small print is worth reading. A home heating oil and propane distributor based in Stamford, Connecticut, it trades at roughly 3.5 times EBITDA, yields about 6%, and has raised its distribution in each of the last 16 years. Small wonder the "overlooked, outperforming, and cheap" label gets thrown around. But the last quarterly report it filed, for the summer three months ended June 30, showed a net loss of $28 million. A beginner scanning that headline might toss the stock aside as broken. The opposite mistake — treating the low multiple as a free lunch — carries its own cost. The truth, as the cash flows lay it out, sits between those two readings.

The cheap part is real

Start with what the market is actually offering. Star Group sells home heating oil and propane to residential and commercial customers in the Northeast and parts of the Midwest, delivers it through the winter, and services the furnaces and air conditioners that burn it. Because fiscal 2026 has been a cold year so far, with temperatures in its operating areas running 11.5% colder than a year earlier, the financials have been strong: through the first nine months the company earned $116.1 million in net income and $189.3 million in adjusted EBITDA, up about $20 million from the prior year.

The valuation numbers take their meaning against a direct peer. Suburban Propane, the closest large comparable, trades at about 8.5 times EBITDA and yields a bit over 7%. Star Group trades at under half that multiple — around 3.5 times — and still pays out roughly 6%. Its return on invested capital runs in the mid-teens and its return on equity past 20%. That is not a stock the market has fallen in love with; it is a stock the market has largely ignored, and the dividend is the chequebook that says so.

The balance sheet passes the survival test

For a value idea, cheapness means nothing until the survival test passes, and here it does. Long-term debt was about $152 million at the end of June against roughly $27 million of cash, a modest net position that puts leverage near 1x adjusted EBITDA — nowhere near the level that would threaten solvency or the distribution. The payout is well covered: trailing free cash flow of nearly $57 million against an annual distribution of roughly $26 million works out to better than a 2x cushion. This is not a highly levered name heading toward insolvency that happens to be cheap. It is a low-debt cash generator whose yield is supported by the balance sheet, not threatened by it.

That is the whole argument for owning it, and it is a legitimate one. A retail investor who wants a cash distribution from a stable-looking operator can do far worse. But the reason the stock is so much cheaper than its propane peer is exactly where the story gets complicated.

Why the discount isn't a free lunch

The gap between Star and Suburban is not pure mispricing; part of it is a fair penalty for what each company actually sells. Suburban moves propane — LP gas used mainly in rural areas where natural gas pipes do not reach, a market that holds up well. Star's core product is heating oil, and heating oil sits on the losing end of one of the clearest secular trends in home energy: customers converting to natural gas and electric heat pumps as furnaces age out. Every winter Star loses customers to that conversion, plus a steady trickle of attrition, and growth comes mainly from buying up smaller independent dealers in a fragmented market to replace the losses.

That is precisely the risk the market is pricing with a sub-4-times multiple. The discount to propane peers is big, but durability is the variable the discount is betting against — and durability is exactly the condition a big discount must satisfy before it means anything. When the two businesses genuinely differ on the durability of demand, the valuation gap is evidence of the difference, not proof of an opportunity.

None of this makes Star a trap. The nuance here is that the gallon base erodes slowly rather than collapsing, and the balance sheet and dividends keep paying while it happens. The seasonal distraction explains a lot of the confusion: Star earns its money in the winter months and loses money in the summer, so a $28 million loss in the June quarter is normal, not alarming — the $6.2 million jump in insurance costs plus a 9.4% drop in summer volumes widened the seasonal hole, but the annual figure is what matters. The number an investor should actually be tracking is not the quarterly loss or even the share price; it is customer retention and total gallons, because that is the measure of whether the slow erosion is accelerating.

The honest reading

Star Group earns its label up to a point. It is genuinely cheap, genuinely well-covered, and genuinely low-debt, and the 6% yield rests on a real cash-flow base rather than a leveraged guess. What it is not is a re-rating slam dunk of the sort the "what's not to like" phrasing implies. The wide gap to Suburban's multiple is partly a quality discount that exists for a reason, and the market is not wrong about heating oil's long-term directional drift.

For an income investor who can accept a business that slowly shrinks and is honest about it, that combination — a covered yield, a strong balance sheet, and a cheap multiple creating a real but modest margin of safety — is the actual case. The caveat is durable value rather than survival risk: the question that will decide the outcome is not whether Star goes broke, but whether its customer losses keep losing to its acquisitions and its weather. So far this year they have. Star remains in solid shape, and buying the discount makes sense — with the clear-eyed knowledge that the discount exists partly because the road ahead is downhill.